Say Hello To Comrade Riskoff
President Obama just finished addressing the twin crises in Ukraine and the Middle East in the White House press room. It's no wonder that gold and silver are up today on haven demand. Risk was off around the globe in equities.
Ukraine presents the thornier problem of the two, which is not dismiss the threat from barbaric terrorism group ISIS. The Russians are a powerful military power and Ukraine is on their doorstep. However, Ukraine is easily supplied by land and sea by the West, and they are, after all, fighting for the integrity of their own country, on their own soil.
Although this sort of thing is said a little too often, Ukraine is Russia's Vietnam. Maybe it would be better to say Ukraine is Russia's second Afghanistan.
Obviously Russia can cut off Europe's natural gas supplies any time it wishes to. But, when it does, it will be also cutting off its nose to spite its face. Russia derives about 40% of its economic activity from the export of natural gas and practically 100% of its foreign currency. Europe can turn the heat up pretty high and Russia will be hamstrung. Obama and German President Merkel had an in-depth conversation before his news briefing and it seems that all involved western parties are on the same page.
ISIS is a long-term problem and we can expect more and more bloodshed in this enormous conflict. The bright side is that many very evil people will be killed or put out of commission. Sadly, the innocent will also suffer.
"With the geopolitical tensions in Ukraine building up, the easiest trade is risk off, so we could see gold go up" Thursday and Friday, said Bill Baruch, a senior market strategist with iiTrader in Chicago. (From the WSJ)
Oil is also finding some traction that centers on the fighting in Iraq and Syria. Look for Israel to come into the conflict soon and re-take the Golan Heights from a weak U.N. force, which is already being pressured by ISIS. Then volatility will rule.
The ruble sank 1.5% today, tumbling to a 21-year low (dating to 1993 when new economic data-keeping began in Russia). Investor confidence in the Russian economy is also heading toward an all-time low.
Tempering the haven appetite for precious metals was a positive revision of U.S. GDP growth in the second quarter. It went from 4.0% to 4.2%. That's a good sign for the U.S., but even 4.2% does not make up for the disastrous Q1 when the economy in America contracted. We're still looking at tepid growth for the entire year of '14.
This seems to have been overlooked by many investors despite the fact that almost all predictions for overall U.S. growth for the current year are put at less than 2%. Is this some sort of information that should be prompting investors to be shy of gold and silver, thinking, as many analysts are saying, that the slight upward revision is more reason to fear an uptick in interest rates? We think not.
A closing thought in the form of a Russian proverb. Putin should heed his country's folk wisdom:
Your elbow is close but you can't bite it.
As always, wishing you good trading,